Which of the following statements is NOT correct?

Question

BlackTom AI · Accepted Answer

To assess which statement is NOT correct, I’ll evaluate each option on its own merits and relate it to standard concepts in industrial organization.
Option 1: 'The larger the Herfindahl index, the greater the degree of market power in an industry.' This is generally true. The Herfindahl-Hirschman Index (HHI) sums squared market shares; higher values indicate greater concentration and typically more market power for the firms in the industry, all else equal.
Option 2: 'If an industry evolves from monopolistic competition to oligopoly, we would expect the four-firm concentration ratio to increase.' This makes sense conceptually. Monopolistic competition features many firms with differentiated products and relatively low CR4; moving toward oligopoly means fewer firms with higher individual shares, raising CR4, so an increase is expected.
Option 3: 'One major problem with concentration ratios is that they fail to take into account the localized market for products.' This is correct. Concentration ratios like CR4 or CR8 summarize national or overall market shares and overlook regional or local variations in competition and market structure, which can be important for real-world analysis.
Option 4: 'An industry producing a homogeneous product whose four-firm concentration ratio is 76 percent is an example of monopolistic competition.' This statement is not correct. Monopolistic competition is typified by many firms, differentiated products, free entry/exit, and typically relatively low concentration. A CR4 of 76 percent with a homogeneous product strongly suggests a more concentrated market, such as an oligopoly, rather than monopolistic competition. The combination of a high four-firm concentration and homogeneous product contradicts the defining features of monopolistic competition, making this statement the NOT-correct one.
In summary, options 1–3 align with standard theory and intuition about market structure and concentration measures, while option 4 mischaracterizes a high-CR4, homogeneous-product scenario as monopolistic competition, which is inconsistent with the typical market structure implied by such a concentration level.

Which of the following statements is NOT correct?Single choice

Similar Questions

8. The Herfindahl index is: A. the sum of the squared percentage market shares of all firms in the industry. B. the sum of the market shares for the top 10 firms in the industry. C. a measure of product differentiation in the market. D. a measure of how easy it is for new firms to enter the market.

A high Four-Firm Concentration Ratio (CR4), such as 80%, indicates:

Which of the following industries has the highest concentration ratio?

The Herfindahl index solves which problem with the N-Firm ratio?

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